Long-Term Contracts

This article from the Yakima (Wash.) Herald, “Future full of doubt for Central Washington timber industry,” highlights a familiar theme: A “small mill is the only one remaining in the Eastern Cascades from Yakima County to the Canadian border. That means while more than a million acres need thinning, there’s no place else buying the wood.”

And, “Experts say the solution is to rebuild the timber industry, but by focusing on small logs now in abundance and encouraging innovative companies that use waste wood for manufactured products or biomass energy to invest here.”

How to do that? The first step is to provide long-term supply agreements, the articles says. IMHO, not just 10 years, but 20, at least.

10 Comments

  1. 20 year long-term supply agreements are what I have generally seen in the Forestry and Wood Products industry when the forest assets are split off from the mills. Things can get nasty during negotiations for contract renewal so the longer period helps to increase the chance for success of both entities. In addition, they have time to get to know their new old partner who now has different incentives. The longer period also gives them both time to investigate alternative partners if the old partner becomes unreasonable.

  2. Long term agreements? But, can the federal government be trusted to honor that agreement? I’m thinking of Ketchikan Pulp’s long term agreement that the government cut short (during the Clinton administration?).

    Initially, this agreement was to boost the economy of southeast Alaska – which it did. Then, when the agreement was ended, the timber industry went bust and the economy stagnated. For a time after the mill’s closure, the barge companies did okay as they loaded household goods and shipped them south!

    Of course some would say that tourism has been the “savior”. That is, if a short tourist season and the many shops and excursions owned and staffed by the cruise lines can be considered a boon to local economy – these typically close up shop when the tourist season ends. [Imagine a community of 8-9000 people supporting 8 jewelry shops in a single block! They are owned by the cruise ships,for the sole benefit of those ships, and probably of little benefit to the local community.]

    • Closures of the Sitka pulp mill in 1993 and Ketchikan pulp mill in 1997 [26] were significant contributors to the decline of timber industry employment to the current level. The two pulp mills were selling into a global market for dissolving pulp, the two mill’s only product. That market drove an all-time timber production high in 1974 (in which 590 million board feet was logged on the Tongass National Forest). Production declined 25% by 1982, recovered somewhat in 1988, and declined globally every year since then until the mills closed (except 1995), according to the 2004 Forest Service document PNW-GTR-611 (at 51-52). Demand and prices for dissolving pulp also declined substantially during that period, as new technologies and materials displaced dissolving pulp (e.g. the main end-product, rayon, lost popularity). Indicative of the collapse of the dissolving pulp market and its consolidation, other mills making dissolving pulp closed in Port Angeles, Washington in 1997 and Sweden in 1998. (Id.).

  3. Under current law, complying with NFMA, ESA and NEPA for a long-term commitment to logging national forests would be a challenge. The next best thing (or in my mind the best thing) would be to include a realistic projection of timber yield resulting from a forest plan. Better yet, include a worst-case projection as well. Unfortunately, I think the incentive is still there for the Forest Service to over-promise its forest plan timber outputs, and skepticism is rightfully there in the timber industry.

  4. Seems sometimes long term contracts could hurt competition and opportunity for others to bid. I think it would be better if we knew the federal government was going to have a consistent sales program. Selling timber monthly, year around. I have always been in favour of lots of small to mid size sales. The more people participating the better. The people’s forest for the people.
    We do have a real problem with lost of infrastructure. We might be surprised at what might be created if the federal government had a diverse sales program.

    • Bob, I hear you, but the long-term nature of these contracts is crucial to obtaining financing and to operations. What about several long-term contracts in areas where smaller processing operations are likely to be the best fit, and single contracts in other areas?

  5. Yes, a mixed up program would be idea.
    The past 15 years have been all fairly large thinning sales. I have seen some districts sell their yearly target volumes in one or two sales. Which I don’t think does much to stimulate the local economy. The more people at the table the better.
    Having one entity having all the rights to the federal forest in a given area, I think, leads to more problems then it solves.

  6. “Long term contracts” seems somewhat in conflict with all the noise about “increasing pace and scale.”

    Long-term contracts might make sense but only in a world where active management is conservatively paced so it is sustainable and avoids adverse cumulative effects.

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